The June gain for both new and existing homes sales puts housing on a firmer foundation, but at a highly reduced sales pace — the firm foundation now sits in a very low valley. With mortgage rates and the unemployment rate higher in June, it is easy to see some giveback in new home sales next month. Looking farther ahead, a return to positive net job creation by early 2010 will go a long way toward building the first floor of a recovering housing market. –PNC

This was a surprisingly strong report, and it adds to the growing body of evidence pointing to a modest rebound in the U.S. housing market. In fact, it is hard not to get a tad bit excited about the outlook for the U.S. housing market, as it appears that U.S. homebuyers may be beginning to take advantage of the favorable buying environment, particularly given the low mortgage rate, affordable prices and the many inducements coming from the federal government. Even so, the dismal state of the U.S. labor market will continue to cast a long shadow over the prospects for a meaningful recovery in the sector in the near term. –Millan L. B. Mulraine, TD Securities

A couple of cautionary notes. First, the report showed a sharp 6% sequential decline in June suggesting that much of the sales activity was concentrated at the lower end of the market. Second, sales contracts that were signed in June may have been tied to the lows in mortgage rates that were recorded in April and May… If the June sales pace can be sustained then the months’ supply should approach the normal range of 5.5 to 6 months by early 2010. However, if the sales pace turns lower in coming months and housing starts continue to rebound, then the inventory imbalance will persist. –David Greenlaw, Morgan Stanley

Unlike the prices of existing homes, the median sales price of new homes sold fell in June by 5.8% from the May median and 12% from a year ago. However, the average sales price was essentially unchanged in June and down about 7.5% from a year ago). Underlying details show suggest that sales of lower priced homes improved more than of higher priced homes. –Nomura Global Economics

The news sounds better than it looks … despite the jump in sales in June, new home sales remain at very low levels, and the not seasonally adjusted data show a total of 36,000 homes sold nationwide in June, the lowest sales total for June since 1982. –Richard F. Moody, Forward Capital

Although most evidence indicates that new housing activity (starts and sales) has bottomed, we do not anticipate anything resembling a “v-shaped” recovery. The same appears to be true of existing homes, where first-timers are being tempted by deeply discounted properties coming out of foreclosure, but activity up the price scale remains spotty at best. Moreover, supply will remain enormous, particularly with increased competition coming from distressed sales of existing homes. –Joshua Shapiro, MFR Inc.

The evidence continues to grow that single-family housing activity has bottomed out. Single-family new home sales have risen for three straight months (with the caveat that this series does not track cancellations, but our guess is that cancellations are declining as the financing environment improves for conforming mortgages), single-family housing starts have risen for four straight months, and the NAHB’s housing market index bottomed in January. –RDQ Economics

The new home sales estimates are extremely “noisy.” For this reason, we recommend focusing on recent trends instead of the latest monthly estimates. A three-month moving average shows that new home sales appeared to have hit a bottom in January, and are starting to grow ever so slightly. By region, sales have started to pick up in the West and Midwest, and are leveling off in the South and Northeast… Although the market for new homes is improving, selling a new home has never been harder. The median time that a new home sits on the market before selling rose to an all-time high of 11.8 months. The number is rising because builders must cover their costs, and do not have the option of selling homes at “fire sale” prices… One unknown is how much of the increase in sales is coming from new homeowners taking advantage of up-to-$8,000 tax credit that expires November 30. The National Association of Homebuilders in a January study estimated that the credit would boost new construction by about 40,000 units. If this is so, we are likely to see the new home sales and housing starts numbers level off for a while near the end of the year. –Patrick Newport, IHS Global Insight

We believe, new home sales is probably a better reflection of the underlying demand than the existing home sales which have been highly boosted by the increasing foreclosure numbers recently. The real improvement was in the months’ supply of inventories which dropped significantly to 8.8 months from 10.2 in May and its peak of 12.4 in January. Recent improvement in sales has been led by the NAHB builders’ sentiment index. It has been gradually rising this year as builders become more optimistic about the future of the housing industry in spite of high unemployment rates which still weigh heavily of housing demand. Nevertheless, the recent improvement in new home sales provides further evidence that housing cycle is on its way to recovery and that the economy is headed for a rebound. –Yelena Shulyatyeva, BNP Paribas

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